What Happened?

A number of stocks fell in the afternoon session after disclosures from two lenders raised concerns about deteriorating loan quality across the industry. 

The drop was triggered by specific incidents that have spooked investors. Zions Bancorp announced a $50 million charge-off—a debt the bank doesn't expect to collect—on a single loan. Separately, Western Alliance Bancorp revealed it was dealing with a borrower who had failed to provide proper collateral. These events are compounding existing anxieties about the regional banking sector, which is already under pressure from elevated interest rates and declining commercial real estate values. The news heightened investor concerns that more cracks could appear in borrowers' creditworthiness, potentially leading to increased loan losses and reduced profitability for other banks in the sector.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Regional Banks company Live Oak Bancshares (NYSE: LOB) fell 5.6%. Is now the time to buy Live Oak Bancshares? Access our full analysis report here, it’s free for active Edge members.
• Regional Banks company Lake City Bank (NASDAQ: LKFN) fell 4.5%. Is now the time to buy Lake City Bank? Access our full analysis report here, it’s free for active Edge members.
• Regional Banks company Independent Bank (NASDAQ: INDB) fell 5%. Is now the time to buy Independent Bank? Access our full analysis report here, it’s free for active Edge members.
• Regional Banks company Hilltop Holdings (NYSE: HTH) fell 4.7%. Is now the time to buy Hilltop Holdings? Access our full analysis report here, it’s free for active Edge members.
• Regional Banks company FirstSun Capital Bancorp (NASDAQ: FSUN) fell 5.4%. Is now the time to buy FirstSun Capital Bancorp? Access our full analysis report here, it’s free for active Edge members.

Zooming In On Live Oak Bancshares (LOB)

Live Oak Bancshares’s shares are somewhat volatile and have had 13 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 28 days ago when the stock gained 2.6% on the news that investors scooped up equities, shaking off the initial concerns inferred from the Fed's dot plot, with tech stocks leading the charge. 

As a reminder, the Federal Reserve cut its benchmark interest rate by 25 basis points the previous day and signaled that more reductions could come before year-end and beyond. Initially when the cut was announced and Fed Chair Powell held his press conference, there was a pullback in the market as the Fed's "dot plot" revealed that only one cut was likely for 2026. This was below the three cuts that had been priced into the markets. This was the first interest rate cut of 2025, a move investors had widely anticipated. In response to the decision, stocks rose significantly, positioning major indexes like the S&P 500 and Nasdaq to open at record levels. 

The Fed's decision was influenced by signs of a weakening labor market. Lower interest rates are generally seen as positive for stocks because they reduce borrowing costs for businesses and make fixed-income investments like bonds less attractive by comparison, driving capital into the equity market. While Fed Chair Powell noted the path forward has risks, the prospect of looser monetary policy has fueled optimism on Wall Street.

Live Oak Bancshares is down 12.9% since the beginning of the year, and at $33.58 per share, it is trading 33.1% below its 52-week high of $50.22 from October 2024. Investors who bought $1,000 worth of Live Oak Bancshares’s shares 5 years ago would now be looking at an investment worth $1,040.

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